According to J.P. Morgan, European reinsurance profitability is well above historical levels, meaning the shock required would need to be material in order to reverse the current trajectory of reinsurance prices.
In its recent report, J.P. Morgan described stronger reinsurance industry profitability as “a blessing and a curse.”
This means profits remain high and have further to fall to get back to previous points in the cycle. But if worse-than-expected loss experience drives the direction of pricing, stronger margins could also act as a headwind to more positive pricing trends in the near term.
Analysts at J.P. Morgan expect European reinsurers’ profitability to remain elevated for the next few years. However, given sector profitability, it could take a much larger loss, or a series of losses, to turn the tide from the current soft market environment.
J.P. Morgan explained, “If we compare combined ratio guidance and how this has developed, we can see clearly that underwriting profitability has been far stronger since 2023, with the average combined ratio guidance at 85% in P&C Re for 2026E vs the last peak in 2013 of 94%.
“This means that in order for the reinsurers to see their underwriting profitability move into a loss making position, it would take losses being more than 15ppts above expectations to hit this level.”
For context, 2017 saw catastrophe losses roughly 15ppts above budget levels for the largest reinsurers. Even without the benefit of discounting for the reinsurers, J.P. Morgan said the average combined ratio guidance for 2026 would be around 92.5%, still more profitable than the 94% peak seen in 2013.
“At this stage, it is difficult to say when the current softening market conditions will abate, with strong levels of profits in the industry expected again for 2026,” the analysts added.
